What is a Mutual Fund?

A mutual fund is a professionally-managed financial instrument, usually run by an asset management company. The fund is made up of money collected in from several investors who share a common (‘mutual’)investment objective. 

The mutual funds are managed by fund managers who are professionally qualified and well experienced. The collected money is then invested in various other financial instruments such as bonds, equities, and/or other securities. So, each investor owns units, which is a portion of the holdings of the fund.

What is Net Asset Value in Mutual Fund?

The net asset value or NAV is the per-unit cost of a particular mutual fund. 

Eg: Net asset value (NAV) of Axis blue-chip fund direct growth is Rs 29.54 (as on 30 May 2020).

This value is calculated by dividing the sum of all the cash and securities in the mutual fund’s portfolio, minus any liabilities, by the number of outstanding shares.

The units of a particular fund can be purchased or redeemed as needed at the fund’s current net asset value (NAV). These net asset values keep fluctuating, according to the price variation in the fund’s holdings.

Why Mutual Funds?

Most people find mutual funds confusing. But, if well understood mutual funds are one of the best investment options. Let us now look at the major advantages of mutual fund investment

1. The first and foremost advantage is ‘Risk Diversification’. This is because in mutual funds there is a mixing of investments and assets within a portfolio. So, even if some stocks or assets within the portfolio have some issues, it won’t affect the fund’s performance much.

2. Liquidity: You can sell your mutual fund units at any point and the total amount will get credited to your account within 2 to 3 days. But it is not possible if you are investing in close-ended mutual funds.

3. Professional management: Through mutual funds, an investor can get a full-time manager to make and monitor investments. These fund managers are well experienced and work in the best interest of mutual fund shareholders.

4. Variety of offerings. There are several mutual fund schemes. So an investor can select a scheme of his or her choice. This variety allows investors to gain exposure to not only bonds and stocks but also foreign assets, commodities, real estate, etc.

Mutual Fund providers in India

In India, most of the mutual funds are part of a much larger investment company. Here are some of the famous mutual fund providers in India:

1. ICICI Prudential Mutual Fund

2. SBI Mutual fund

3. HDFC Mutual fund

4. Aditya Birla Sun Life Mutual Fund

5. Kotak Mahindra Mutual Fund

Hence, all we have to do is approach a suitable mutual fund provider. Also, as every mutual fund advertisement highlights, we have to remember that ‘Mutual Funds are subjected to market risks, read all scheme related documents carefully’. So, read the mutual fund schemes carefully and select a fund scheme as per our choice.